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SDOT1 Financial Report 30 June 2008 - Stockland

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Stockland Direct Office Trust No. 1ARSN: 110 688 009 Annual Financial Report 30 June 2008


Directors’Report01IncomeStatement06Statement ofChanges inEquity08Notes to theFinancialStatements10IndependentAuditor’sReport25Lead Auditor’sIndependenceDeclaration05Balance Sheet07Cash FlowStatement09Directors’Declaration24one company,diversified portfolioDiversity by asset class and geography underpins our continuedperformance. Our capability is strengthened by being onediversified company with the strength of one platform.About usStockland (ASX:SGP) is one of the largestand most diversified property groups inAustralia with interests in retail,commercial, industrial, residential andretirement living investment anddevelopment, and funds management.Stockland currently has total assets inAustralia and the united Kingdom of $14.7billion, market capitalisation of $8 billion,and reported an operating profit of $674million for the year ended 30 June 2008.Additional information can be found onour website www.stockland.com.auOur vision is to create a world classproperty group. We see that our purposeis to deliver enduring value for ourstakeholders through innovative,customer focussed property solutions.


stockland direct office trust no. 1directors’reportfor the year ended 30 June 2008The Directors of Stockland Capital PartnersLimited (“SCPL”), the Responsible Entity ofStockland Direct Office Trust No. 1 (“theTrust”), present their report together with theFinancial Report made in accordance with aresolution of the Directors with respect to theresults of the Trust for the year ended 30 June2008, the state of the Trust’s affairs as at30 June 2008 and the related IndependentAuditor’s Report.Stockland Funds Management Limited(“SFML”) was appointed the ResponsibleEntity at the date the Trust commenced.SFML changed its name to Stockland CapitalPartners Limited on 21 December 2007.DirectorsThe Directors of the Responsible Entity at anytime during or since the end of the financialyear (“the Directors”) are:Peter ScottChairman (Non-Executive)Appointed 22 November 2005Mr Scott is a Director of StocklandCorporation Limited (“Stockland”), theChairman of Sinclair Knight Merz HoldingsLimited and was appointed a Director ofPerpetual Limited on 31 July 2005. Mr Scott isalso a Director of Pilotlight, a non-profit makingorganisation, O’Connell Street Associates PtyLimited and is on the Advisory Board of JonesLang LaSalle Australia. Mr Scott was the ChiefExecutive Officer of MLC and ExecutiveGeneral Manager, Wealth Management ofNational Australia Bank until January 2005.Prior to this, he held a number of seniorpositions with Lend Lease, following asuccessful career as a consulting engineerin Australia and overseas. Mr Scott wasappointed as a Director and was electedChairman of Stockland Capital PartnersLimited, the Responsible Entity for Stockland’sunlisted funds, on 22 November 2005 and isa member of Stockland’s Human ResourcesCommittee.Lyn Gearing(Non-Executive)Appointed 22 November 2005,retired 30 June 2008Ms Gearing is currently a Director of Stockland,Hancock Natural Resources Group AustralasiaPty Limited, IMB Limited, QueenslandInvestment Corporation and the GarvanResearch Foundation. Ms Gearing was ChiefExecutive of NSW State Super from 1997 to2002, and has extensive business experiencein superannuation, funds management,corporate finance and management consulting.She is a member of Stockland’s Audit and RiskCommittee and was a member of StocklandCapital Partners Limited Audit & Riskcommittee until 30 September 2007. She wasalso a Director of Stockland Capital PartnersLimited, the Responsible Entity of Stockland’sunlisted funds, until 30 June 2008. Ms Gearingwas appointed Chair of the Stockland andStockland Capital Partners Financial ServicesCompliance Committees on 1 July 2006.David Kent(Non-Executive)Appointed 9 August 2004Mr Kent is currently Executive Chairman ofEverest Babcock and Brown Limited and aDirector of the Australian chapter of theAlternative Investment Management Association(“AIMA”). He was previously Executive GeneralManager of Axiss Australia and served as amember of the Financial Sector AdvisoryCouncil. Mr Kent is a past Senior Trade andInvestment Commissioner in Paris andWashington DC for the Australian TradeCommission. Mr Kent formerly worked forMorgan Stanley in Sydney, Melbourne and NewYork where he became Managing Director andHead of Investment Banking. Mr Kent haspreviously served as Deputy Chairman of the ArtGallery of NSW Foundation, Chairman of theBrett Whiteley Foundation and is currently on theS.H. Ervin Gallery Committee. He is a member ofthe Stockland Residential Estates Equity FundNo .1 (“SREEF No .1”) Investment Committee.Anthony Sherlock(Non-Executive)Appointed 9 August 2004Mr Sherlock is a former senior partnerof Coopers and Lybrand having nationalresponsibility for credit risk management. Inthat capacity, he obtained experience in thebanking and finance, mining, agriculture,building, construction and developmentsectors. Mr Sherlock is a non-executiveDirector of Sydney Attractions Group Limited,IBA Health Limited, Export Finance InsuranceCorporation and Equatorial Mining Limited. Heis a consultant to the Chairman of the AuditCommittee of Commander CommunicationsLimited. Mr Sherlock is the former Chairmanof Woolmark Company Pty Limited and hasacted on a number of committees for bothFederal and State governments. He is amember of the Stockland Capital PartnersAudit and Risk Committee, the StocklandTrust Management Limited and StocklandCapital Partners Financial ServicesCompliance Committees and the SREEFNo .1 Investment Committee.Stockland Direct Office Trust No.1 20081


stockland direct office trust no. 1directors’reportfor the year ended 30 June 2008Directors (continued)Terry Williamson(Non-Executive)Appointed 2 July 2004,retired 23 October 2007Mr Williamson is a Director of Stockland, AvantInsurance Limited and ING Australia Limitedand a member of the University of SydneyFaculty of Economics and Business StudiesAdvisory Board. Mr Williamson was previouslyChief Financial Officer of Bankers TrustAustralia Limited/BT Financial Group PtyLimited from 1997 to 2002 and prior to thatwas a partner of Price Waterhouse for 17years. He retired as Director of StocklandCapital Partners Limited and was replaced byMr Barry Neil on 23 October 2007. He wasalso a member of both the Stockland TrustManagement Limited and Stockland CapitalPartners Limited Compliance Committees untilhe retired on 23 October 2007. Mr Williamsonis Chair of the Stockland and StocklandCapital Partners Audit and Risk Committeesand Stockland’s Treasury Policy Committee.Barry Neil(Non-Executive)Appointed 23 October 2007,retired 30 June 2008Mr Neil was appointed to the Board on 23October 2007 and has over thirty five yearsexperience in property, both in Australia andoverseas. He is a Director of Stockland,Dymocks Book Arcade Pty Limited and was,until recently, Director of Property forWoolworths Limited. He previously served asChief Executive Officer, Investment Division(1999 to 2004), Executive Director (1987 to2004) of Mirvac Limited. Mr Neil was a Directorof Stockland Capital Partners Limited, theResponsible Entity for Stockland’s unlistedfunds, from November 2007 to 30 June 2008.Matthew QuinnManaging Director – Stockland – (Executive)Appointed 19 October 2000Mr Quinn has an extensive background incommercial, retail, industrial, and residentialproperty investment and development. Hebegan his career in the United Kingdom as aChartered Accountant and moved to Australiain 1987 with Price Waterhouse. In 1988 hejoined the Rockingham Park Group, asubstantial Western Australian private propertygroup. Mr Quinn joined Stockland in 1999 andwas appointed to his current role of ManagingDirector in October 2000. Mr Quinn held theposition of National President of the PropertyCouncil of Australia from March 2003 untilMarch 2005. He is a Fellow of the AustralianProperty Institute and the Royal Institute ofChartered surveyors. He was appointedDirector of Australian Business andCommunity Network Limited in November2007. Mr Quinn is a member of Stockland’sCorporate Responsibility and SustainabilityCommittee and a Director of Stockland CapitalPartners Limited, the Responsible Entity forStockland’s unlisted funds.Hugh ThorburnFinance Director – Stockland – (Executive)Appointed 25 October 2007Mr Thorburn was appointed to the Board on25 October 2007 as an alternate Director forMr Quinn. He is a Chartered Accountant andhas held a number of senior financial andgeneral management roles in Australiancompanies. Mr Thorburn is also a Directorof Stockland and a member of Stockland’sTreasury Policy Committee.Stockland Capital PartnersLimited Financial ServicesCompliance CommitteeA Financial Services Compliance Committeehas been set up to oversee the CompliancePlan approved by the Responsible Entity forthe Trust.The role of the Committee includes evaluationof the effectiveness of the Trust’s CompliancePlans designed to protect the interests ofUnitholders. The Compliance Plan has beenapproved by the Australian Securities andInvestments Commission (“ASIC”). TheCommittee meets regularly and must reportbreaches of the law and Constitution to theBoard which is required to report any materialbreach of the Compliance Plan to ASIC.The members of the Committee during andsince the end of the financial year were:Ms L Gearing (Chair) – Non-Executive Director,Mr A Sherlock – Non-Executive DirectorMr P Hepburn – Executive MemberOn 23 October 2007, Mr T Williamson resignedas a member of this Committee and wasreplaced by Mr P Hepburn.2Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1directors’reportfor the year ended 30 June 2008Stockland Capital PartnersLimited Audit and RiskCommitteeThe Audit and Risk Committee assists theBoard in fulfilling its governance and disclosureresponsibilities in relation to financial reporting,internal controls, risk management systemsand internal and external audits.The primary objective of the Committee is toassist the Board of SCPL in discharging itsresponsibilities for:• financial reporting and audit practices;• accounting policies;• the management of risk; and• the adequacy and effectivenessof internal controls.The Committee meets at least quarterly andits meetings are attended by management andinternal and external audit and other parties asrelevant. The Committee may meet privatelywith the external auditors in the absence ofmanagement at least once a year. TheCommittee has the power to conduct orauthorise investigations into, or consultindependent specialists on, any matters withinthe Committee’s scope of responsibility. TheCommittee has a written terms of referencewhich incorporates best practice. Its membersmust be independent of management and atleast one member of the Committee hasrelevant accounting qualifications andexperience and all members have a goodunderstanding of financial reporting.The members of the Committee during orsince the end of the financial year were:Mr T Williamson (Chair) – Non-Executive DirectorMr A Sherlock – Non-Executive DirectorMs L Gearing – Non-Executive Director,retired 30 September 2007Principal activitiesThe principal activity of the Trust is theownership of property in Waterfront Placesituated at 1 Eagle Street, Brisbane via itsinvestment of 50% in SDOT Sub-Trust 1.Review of operationsThe Trust achieved a profit from operatingactivities of $43,271,000 for the financialyear ended 30 June 2008 (30 June 2007:$59,725,000).An upwards revaluation totalling $38,984,000was recognised in the Trust’s IncomeStatement through the recognition of theTrust’s share of net profits of the joint venture.During the year an independent valuation wasperformed with the result of the WaterfrontPlace property being revalued upwards to$570,000,000 (100% basis). This representsan increase of 18% on the 30 June 2007carrying value of $482,979,000.Distributions paid or declared by the Trust toUnitholders during the financial year are setout in Note 15 of the Financial Statements.Significant changes in thestate of affairsApart from the matters discussed in the reviewof operations, there have been no significantchanges in the state of the affairs of the Trustduring the year.Events subsequent to the endof the yearThere have been no events subsequent to thebalance date which would have a materialeffect on the Trust’s Financial Statements at30 June 2008.Likely developmentsThe Trust will continue to review investmentmanagement strategies with a view tooptimising both the income and capital returnover the investment term.Environmental regulationThe Trust’s operations are subject to variousenvironmental regulations under bothCommonwealth and State legislation. TheResponsible Entity believes that the Trust hasadequate systems in place for themanagement of its environmentalresponsibilities and is not aware of any breachof environmental requirements as they mayapply to the Trust.Related partiesStockland Trust Management Limited as theResponsible Entity of Stockland Trust, arelated party of the Responsible Entity, holds2,537,500 (2007: 985,000) units in the Trust asat 30 June 2008.Interests of theResponsible EntityThe Responsible Entity has not held any unitsin the Trust either directly or indirectly duringthe financial year.Responsible Entity’sremunerationThe Responsible Entity charged a responsibleentity fee of 0.45% p.a. of the gross assets ofthe Trust. The Responsible Entity may defer aportion of the annual fees each year. TheResponsible Entity is entitled to recover allfees deferred either from Trust earnings or onwinding up of the Trust. The ResponsibleEntity charges are set out in Note 18 of theFinancial Report.Directors’ interestsThe relevant interest of each Director of theResponsible Entity holding units in the Trust atthe date of this report is as follows:DirectorNumber of units heldMr David Kent 20,000Mr Matthew Quinn 15,000Stockland Direct Office Trust No.1 20083


stockland direct office trust no. 1directors’reportfor the year ended 30 June 2008Indemnities and insuranceof officers and auditorsIndemnificationUnder the Trust Constitution, the ResponsibleEntity, including its officers and employees, isindemnified out of the Trust’s assets for anyloss, damage, expense or other liabilityincurred by it in properly performing orexercising any of its powers, duties or rights inrelation to the Trust.The Trust has not indemnified or made arelevant agreement for indemnifying against aliability in respect of any person who is theauditor of the Trust.Insurance premiumsThe Responsible Entity has paid insurancepremiums in respect of Directors’ and officers’liability insurance contracts for the Directors.Such insurance contracts insure againstcertain liabilities (subject to specifiedexclusions) for persons who are or have beenDirectors and officers of the Responsible Entity.In addition, the Responsible Entity has paidinsurance premiums for professional indemnityinsurance policies to cover certain risks forthe Directors.Details of the nature and the amount of theliabilities covered or the amount of thepremium paid has not been included as suchdisclosure is prohibited under the terms of theinsurance contracts.RoundingThe Trust is an entity of the kind referred to inASIC Class Order 98/100 (as amended) and inaccordance with that Class Order, amounts inthe Financial Report and Directors’ Reporthave been rounded to the nearest thousanddollars, unless otherwise stated.Signed in accordance with a resolution of theDirectors:Matthew QuinnDirectorDated at Sydney, 21 August 2008lead auditor’s independencedeclaration under Section307C of the corporationsact 2001The external auditor’s independencedeclaration is set out on page 5 and formspart of the Directors’ Report for the yearended 30 June 2008.4Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1lead auditor’sindependence declarationunder section 307c of the corporations act 2001To: the Directors of Stockland Capital Partners Limited, the Responsible Entity of Stockland Direct Office Trust No. 1.I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2008 there have been:(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and(ii) no contraventions of any applicable code of professional conduct in relation to the audit.KPMGScott FlemingPartnerDated at Sydney 21, August 2008KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, aSWISS cooperative.Stockland Direct Office Trust No.1 20085


stockland direct office trust no. 1incomestatementfor the year ended 30 June 20082008 2007Notes $’000 $’000Revenue and other incomeInterest income 135 72Share of profit of investments accounted for using the equity method 7 52,875 72,394Total revenue and other income 53,010 72,466Finance costs to external parties 1,2 (6,680) (6,249)Auditors’ remuneration 4 (47) (52)Responsible Entity fees 18 (1,231) (966)Performance fee 11 (1,193) (5,232)Unwind of discount on performance fee provision 11 (372) –Other expenses (216) (242)Total expenses before finance costs to Unitholders (9,739) (12,741)Profit from operating activities 43,271 59,725Distribution (finance) expense to Unitholders 1 15 (5,653) (5,380)Change in net assets attributable to Unitholders 14 37,618 54,3451Total finance costs for the Trust are $12,333,000 (2007: $11,629,000), being the sum of finance costs to external parties and distributions to Unitholders. In order to comply with AASB 132“Financial Instruments: Disclosure and Presentation” (“AASB 132”), the Unitholders’ funds are required to be treated as a liability to Unitholders and trust distributions to be treated as anexpense in the Income Statement.2Relates to interest expense of the Trust’s interest-bearing financial liabilities which is carried at amortised cost.The above Income Statement should be read in conjunction with the accompanying notes.6Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1statement ofchanges in equityfor the year ended 30 June 2008Unitholders’ FundsUnits on Issue Undistributed Income Total30 June 30 June 30 June 30 June2007200820072008$’000$’000$’000$’00030 June2008$’000Opening balance – – – – – –Effective portion of changes in fair value of cashflow hedges – – – – – –Total non-profit items recognised directly in equity – – – – – –Profit for the year – – – – – –Total recognised income and expenses for the year – – – – – –Units issued for the year – – – – – –Distributions paid – – – – – –Closing balance – – – – – –The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.30 June2007$’0008Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1cash flowstatementfor the year ended 30 June 20082008 2007Notes $’000 $’000Cash flows from operating activitiesCash receipts in the course of operations 107 45Cash payments in the course of operations (1,381) (934)Distributions received from joint venture entity 15,246 12,930Interest received 135 72Interest paid (6,707) (6,226)Net cash inflows from operating activities 16 7,400 5,887Cash flows from investing activitiesPayments for unlisted units in joint venture entity 7 (6,485) (2,431)Net cash utilised in investing activities (6,485) (2,431)Cash flows from financing activitiesProceeds from external party financing 6,447 750Distributions paid (5,380) (5,373)Net cash inflows from/(utilised in) financing activities 1,067 (4,623)Net increase/(decrease) in cash and cash equivalents 1,982 (1,167)Cash and cash equivalents at the beginning of the financial year 175 1,342Cash and cash equivalents at the end of the financial year 5 2,157 175The above Cash Flow Statement should be read in conjunction with the accompanying notes.Stockland Direct Office Trust No.1 20089


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20081 Summary of significantaccounting policiesStockland Direct Office Trust No. 1 (“theTrust”) is a Managed Investment Schemedomiciled in Australia.The Financial Report as at and for the financialyear ended 30 June 2008 was authorised forissue by the Directors of the ResponsibleEntity on 21 August 2008.(a) Statement of complianceThe Financial Report is a general purposeFinancial Report which has been prepared inaccordance with Australian AccountingStandards (“AASBs”) (including AustralianInterpretations) adopted by the AustralianAccounting Standards Board (“AASB”) and theCorporations Act 2001. The Financial Reportalso complies with the International FinancialReporting Standards (“IFRSs”) andinterpretations adopted by the InternationalAccounting Standards Board (“IAASB”).(b) Basis of preparationThe Financial Report is presented inAustralian dollars, which is the Trust’sfunctional currency.The Financial Report has been prepared onthe basis of the going concern and historicalcost basis except for derivative financialinstruments and investment properties whichare stated at their fair value.The Trust is an entity of the kind referred to inASIC Class Order 98/100 (as amended) andin accordance with that Class Order, amountsin the Financial Report have been roundedto the nearest thousand dollars, unlessotherwise stated.The preparation of a Financial Report requiresmanagement to make judgements, estimatesand assumptions that affect the application ofaccounting policies and reported amounts ofassets, liabilities, income and expenses.These estimates and associated assumptionsare based on various factors that are believedto be reasonable under the circumstances, theresults of which form the basis of making thejudgements about carrying values of assetsand liabilities that are not readily apparent fromother sources. Actual results may differ fromthese estimates.The accounting policies have been appliedconsistently in the preparation of thisFinancial Report.The significant policies which have beenadopted in the preparation of the FinancialReport are set out below.(c) Revenue recognitionRevenue is recognised at the fair value ofthe consideration received or receivable netof the amount of goods and services tax(“GST”) levied.Interest incomeInterest income is recognised in the IncomeStatement as it accrues using the effectiveinterest method and if not received at balancedate, is reflected in the Balance Sheet as areceivable.(d) Segment reportingA segment is a distinguishable component ofthe Trust that is engaged either in providingproducts or services (business segment), orin providing products or services within aparticular economic environment(geographical segment), which is subject torisks and rewards that are different from thoseof other segments.(e) Goods and services taxRevenues, expenses and assets arerecognised net of the amount of GST exceptwhere the amount of GST incurred is notrecoverable from the relevant taxationauthority. In these circumstances, the GST isrecognised as part of the cost of acquisitionof the asset or as part of the expense.Receivables and payables are stated with theamount of GST included. The net amount ofGST recoverable from, or payable to, thetaxation authority is included as a currentasset or liability in the Balance Sheet.Cash flows are included in the Cash FlowStatement on a gross basis. The GSTcomponents of cash flows arising frominvesting and financing activities whichare recoverable from, or payable to, thetaxation authority are classified as operatingcash flows.(f) Income taxUnder current Australian tax legislation, theTrust is not liable for income tax, provided thatthe taxable income (including any assessablecomponent of any capital gains from the saleof investment assets) is fully distributed toUnitholders each year. Tax allowances forbuilding, plant and equipment depreciationare distributed to Unitholders in the form oftax deferred components of distributions.(g) Derivative financial instrumentsThe Trust uses derivative financial instrumentsto hedge its exposure to interest rate risksarising from operational, financing andinvestment activities. In accordance with theResponsible Entity’s policy, the Trust does nothold or issue derivative financial instrumentsfor trading purposes.Derivative financial instruments are recognisedinitially at fair value and subsequently areremeasured to fair value. The gain or loss onre-measurement to fair value is recognised inthe Income Statement. However, wherederivatives qualify for hedge accounting,recognition of any resultant gain or lossdepends on the nature of the item beinghedged. Refer Note 1(h).The fair value of interest rate derivatives is theestimated amount that the Trust would receiveor pay to terminate the swap at the balancedate, taking into account current interest ratesand the current creditworthiness of theswap counterparties.10Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20081 Summary of significantaccounting policies(continued)(h) HedgingThe Responsible Entity formally designatesand documents the relationship betweenhedging instruments and hedged items at theinception of the transaction, as well as its riskmanagement objective and strategy forundertaking various hedge transactions.The Responsible Entity also documents itsassessment, both at hedge inception and onan ongoing basis, of whether the derivativesused in hedging transactions have beenand will continue to be highly effective inoffsetting changes in fair values or cashflows of hedged items.Cash flow hedgeA cash flow hedge is a hedge of the exposureto variability in cash flows attributable to aparticular risk associated with an asset, liabilityor highly probable forecast transaction thatcould affect the Income Statement.The effective portion of changes in the fairvalue of derivatives that are designated andqualify as cash flow hedges is recognised innet assets attributable to Unitholders. The gainor loss relating to the ineffective portion isrecognised immediately in the IncomeStatement.Amounts accumulated in net assetsattributable to Unitholders are recognisedin the Income Statement in the periodswhen the hedged item is recognised inthe Income Statement.When the forecast transaction that is hedgedresults in the recognition of a non-financialasset or a non-financial liability, the gains andlosses previously in net assets attributableto Unitholders are transferred into the initialmeasurement of the cost of the assetor liability.Hedge accounting is discontinued when thehedging instrument expires or is sold,terminated or exercised, or no longer qualifiesfor hedge accounting. Any cumulative gain orloss recognised in net assets attributable toUnitholders at that time remains in net assetsattributable to Unitholders and is recognisedwhen the forecast transaction is ultimatelyrecognised in the Income Statement. When aforecast transaction is no longer expected tooccur, the cumulative gain or loss that wasrecognised in net assets attributable toUnitholders is recognised immediately in theIncome Statement.(i) Finance costsFinance costs to external partiesFinance costs to external parties includeinterest, amortisation of discounts orpremiums relating to borrowings andamortisation of ancillary costs incurred inconnection with arrangement of borrowings.Where interest rates are hedged, the financecosts are recognised net of any realised effectof the hedge.Finance costs to external parties arerecognised as an expense in the IncomeStatement on an accruals basis, and if notpaid at balance date are reflected in theBalance Sheet as a liability.(j) Cash and cash equivalentsCash and cash equivalents comprise cashbalances and at call deposits. Bank overdraftsthat are repayable on demand and form partof the Trust’s cash management are includedas a component of cash and cash equivalentsfor the purpose of the Cash Flow Statement.(k) Impairment of assetsThe carrying amounts of the Trust’s assets arereviewed at each balance date, to determinewhether there is any indication of impairment.If any such indication exists, the asset’srecoverable amount is estimated.An impairment loss is recognised wheneverthe carrying amount of an asset or its cashgenerating unit exceeds its recoverableamount. Impairment losses are recognised inthe Income Statement, unless an asset haspreviously been revalued, in which case theimpairment loss is recognised as a reversal tothe extent of that previous revaluation with anyexcess impairment losses recognised throughthe Income Statement.Calculation of recoverable amountImpairment of receivables is not recogniseduntil objective evidence is available that a lossevent has occurred. Significant receivables areindividually assessed for impairment.Non-significant receivables are not individuallyassessed. Instead, impairment testing isperformed by placing non-significantreceivables in portfolios of similar risk profiles,based on objective evidence from historicalexperience adjusted for any effects ofconditions existing at each balance date.The recoverable amount of other assets is thegreater of their fair value less costs to sell, andvalue in use. In assessing value in use, theestimated future cash flows are discountedto their present value using a pre-tax discountrate that reflects the current marketassessment of the time value of money andthe risks specific to the asset. For an assetthat does not generate largely independentcash flows, the recoverable amount isdetermined for the cash-generating unitto which the asset belongs.Reversals of impairmentAn impairment loss is reversed only to theextent that the asset’s carrying amount doesnot exceed the carrying amount that wouldhave been determined, net of amortisation, ifno impairment loss had been recognised.An impairment loss in respect of a held-tomaturitysecurity or receivable carried atamortised cost is reversed if the subsequentincrease in recoverable amount can be relatedobjectively to an event occurring after theimpairment loss was recognised.Stockland Direct Office Trust No.1 200811


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20081 Summary of significantaccounting policies(continued)(l) Trade and other payablesTrade and other payables are stated at cost.Distributions to UnitholdersDistributions payable are recognised in thereporting period in which the distributions aredeclared, determined, or publiclyrecommended by the Directors on or beforethe end of the financial year, but notdistributed at balance date.(m) Interest-bearing loansand borrowingsInterest-bearing loans and borrowings arerecognised initially at fair value less attributabletransaction costs. Subsequent to initialrecognition, interest-bearing loans andborrowings are stated at amortised cost withany difference between cost and redemptionvalue being recognised in the IncomeStatement over the period of the borrowingson an effective interest basis unless there is aneffective fair value hedge of the borrowings, inwhich case the borrowings are carried at fairvalue and changes in the fair value recognisedin the Income Statement.(n) ProvisionsA provision is recognised when a present legalor constructive obligation exists as a result of apast event and it is probable that a futuresacrifice of economic benefits will be requiredto settle the obligation, the timing or amount ofwhich is uncertain.If the effect is material, provisions aredetermined by discounting the expected futurecash flows at the rate that reflects currentmarket assessments of the time value ofmoney and, where appropriate, the risksspecific to the liability.Performance FeeThe performance fee is recognised in theIncome Statement on an accrual basis. Theperformance fee is calculated in accordancewith the Constitution based on the value of theTrust’s property interest at the current balancedate, discounted to reflect the projected life ofthe Trust and inherent market risks.The performance fee recognised will continueto be remeasured at each reporting date toreflect movements in the Trust’s performanceduring the period. Any revision to theperformance fee will be adjusted through theIncome Statement in the current financial year.(o) Change in net assets attributableto UnitholdersNon-distributable income, which maycomprise unrealised changes in the netmarket value of investments or financialinstruments, net capital losses, tax deferredincome, accrued income not yet assessableand non-deductible expenses is recorded as aliability to Unitholders.The Responsible Entity takes into account theeffect of unrealised changes in the net marketvalue of investments or financial instruments,net capital losses, tax-deferred income,accrued income not yet assessable andnon-deductible expenses when assessing theappropriate distribution payout ratio, to ensurethat Unitholders are not disadvantaged. Theseitems are distributed to Unitholders once theamounts have become assessable for taxationpurposes.(p) InvestmentsJoint venture entitiesThe 50% investment in SDOT Sub-Trust 1is treated as an investment in a jointventure entity.Investments in joint venture entities areaccounted for using equity accountingprinciples. Investments in joint ventureentities are carried at the lower of theequity accounted amount and therecoverable amount.The Trust’s share of the joint venture entitiesnet profit or loss is recognised in the Trust’sIncome Statement from the date joint controlcommences until the date joint control ceases.Other movements in reserves are recogniseddirectly in reserves, classified as a liabilityto Unitholders.(q) New accounting standardsCertain new accounting standards have beenpublished that are not mandatory for thisreporting year. The Trust’s assessment of theimpact of these new standards is set outbelow.Revised AASB 101 “Presentation ofFinancial Statements” (“AASB 101”)introduces as a financial statement (formerly“primary” statement) the “Statement ofComprehensive Income”. The revisedstandard does not change the recognition,measurement or disclosure of transactionsand events that are required by otherAASBs. The revised AASB 101 will becomemandatory for the Trust’s30 June 2010 Financial Report. Applicationof this standard will not affect any of theamounts recognised in the financialstatements but may result in changes interminology used in the Financial Report.Revised AASB 123 “Borrowing Costs”(“AASB 123”) removes the option toexpense borrowing costs and requires thatan entity capitalise borrowing costs directlyattributable to the acquisition, constructionor production of a qualifying asset as partof the cost of that asset. The revised AASB123 will become mandatory for the Trust’s30 June 2010 Financial Report. This willhave no impacton the Trust.12Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20082 Accounting estimatesand assumptionsEstimates and judgements are continuallyevaluated and are based on historicalexperience as adjusted for current marketconditions and other factors, includingexpectations of future events that are believedto be reasonable under the circumstances.The Trust makes estimates and assumptionsconcerning the future. The resultingaccounting estimates will, by definition,seldom equal the related actual results exactly.The estimates and assumptions that have asignificant risk of causing a materialadjustment to the carrying amount of assetsand liabilities within the next financial year arediscussed below.(a) Key sources of estimation uncertaintyEstimates of fair value of investmentproperty interestsThe Trust’s joint venture entity holds aninvestment property that is measured atfair value.The best evidence of fair value is currentprices in an active market for similarinvestment properties, leases and othercontracts. Where such information is notavailable, the consolidated entity determinesthe property’s fair value within a range ofreasonable fair value estimates. In making itsjudgement, the Responsible Entity considersinformation from a variety of sources including:(i) current prices in an active market forproperties of different nature, condition orlocation (or subject to different lease orother contracts), adjusted to reflect thosedifferences;(ii) recent prices of similar properties in lessactive markets, with adjustments to reflectany changes in economic conditions sincethe date of the transactions that occurred atthose prices;(iii) discounted cash flow projections based onreliable estimates of future cash flows,derived from the term of any existing leaseand other contracts, and (where possible)from external evidence such as currentmarket rents for similar properties in thesame location and condition, and usingdiscount rates that reflect current marketassessments of the uncertainty in theamount and timing of cash flows; and(iv) capitalised income projections based upona property’s estimated net market income,which is assumed to be a level annuity inperpetuity, and a capitalisation rate derivedfrom analysis of market evidence.Reversions associated with short termleasing risks/costs, incentives and capitalexpenditure may be deducted from thecapitalised net income figure.Assumptions underlying management’sestimates of fair value of investmentproperty interestThe discounted cash flow approach appliedfor investment properties usually includesassumptions in relation to current and recentinvestment property prices. If such prices arenot available, then the fair value of investmentproperties is determined using assumptionsthat are mainly based on market conditionsexisting at each balance date.The principal assumptions underlying theResponsible Entity’s estimation of fair valueare those related to the receipt of contractualrentals, expected future market rentals, voidperiods, maintenance requirements, andappropriate discount rates. These valuationsare regularly compared to actual marketyield data, and actual transactions by theconsolidated entity and those reported bythe market.The expected future market rentals aredetermined on the basis of current marketrentals for similar properties in the samelocation and condition.Estimates of performance fee expenseA performance fee is payable to theResponsible Entity if certain out performanceis achieved by the Trust. The fee is calculatedon a sliding scale and is payable by the Trustprovided the net sales proceeds of the Trust’sproperty interest exceed the application priceby 10%. Refer Note 18 for further details.The Responsible Entity determines the valueof the performance fee to be provided basedon the current property valuation andestimates regarding the likely sales proceedson disposal of the Trust’s property interest.The best evidence of the likely sales proceedsis the fair value of the property interest.Current prices in an active market for similarinvestment properties, leases and othercontracts are the best indicator of fair value.Where such information is not available, theResponsible Entity determines the property’sfair value within a range of reasonable fairvalue estimates. In making its judgement, theResponsible Entity considers information froma variety of sources as described in Note 2 (a)(i) – (iv) above.An estimate of the performance fee expense isthen made factoring in the current fair value ofthe Trust’s property interest and expectationsregarding future property market volatility.Assumptions underlying management’sestimates of performance fee expenseThe performance fee if any is recognised inthe income statement on an accruals basis.The performance fee is calculated inaccordance with the Constitution.This involves the below assumptions.The discounted cash flow approach appliedfor determining the fair value of the propertyinterest usually includes assumptions inrelation to current and recent investmentproperty prices. If such prices are notavailable, then the fair value of investmentproperties is determined using assumptionsthat are mainly based on market conditionsexisting at each balance date.The principal assumptions underlying theResponsible Entity’s estimation of fair valueare those related to the receipt of contractualrentals, expected future market rentals, voidperiods, maintenance requirements, andappropriate discount rates. These valuationsare regularly compared to actual market yielddata, and actual transactions by the Trust andthose reported by the market.Stockland Direct Office Trust No.1 200813


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20082 Accounting estimates and assumptions (continued)(a) Key sources of estimation uncertainty (continued)Assumptions underlying management’s estimates of performance fee expense (continued)The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.It is assumed payment of the performance fee will occur in accordance with the Constitution and the projected life of the Trust.The Trust has then applied an appropriate discount rate to reflect the projected life of the fund.fair value of derivativesThe fair value of derivatives is determined using a discounted cash flow analysis based on assumptions supported by observable market rates.The determination of fair value of derivatives is described further in Note 1(g) and Note 17.3 Segment ReportingThe Trust operates solely in the business of investment management in Australia.4 Auditors’ remuneration2008 2007$ $Audit services to KPMG (Australia)Audit and review of the Financial Reports 20,000 17,000Other audit services 3,000 7,300Compliance audit services 15,000 18,30038,000 42,600Other services to KPMG (Australia)Tax compliance services 8,900 9,1458,900 9,145Total remuneration 46,900 51,7455 Current assets – Cash and cash equivalents2008 2007$’000 $’000Cash and cash equivalents 2,157 175The weighted average interest rate for cash at bank and on hand as at 30 June 2008 was 6.85% (2007: 5.93%).6 Current assets – Other assetsGoods and services tax (“GST”) receivable 45 16Prepayments 4 –Interest receivable under the interest rate swap 127 –176 1614Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20087 Non-current assets – Investments accounted for using the equity methodSDOT Sub-Trust 1LocationNSWPrincipalactivityThe joint venture was formed in Australia. The principal activity is investment in real property.HoldingCarrying amount2008 2007 2008 2007% % $’000 $’000Propertyinvestment 50 50 283,732 239,6182008 2007$’000 $’000Movements in carrying amount of investments accounted for using the equity methodCarrying amount at the beginning of the financial year 239,618 177,723Interest in joint venture entity acquired 6,485 2,431Share of net profit 52,875 72,394Distributions received (15,246) (12,930)Carrying amount at the end of the financial year 283,732 239,618Share of joint venture entity’s assets and liabilitiesCurrent assets 2,286 2,907Non-current assets 284,284 240,578Total assets 286,570 243,485Current-liabilities (2,838) (3,867)Total liabilities (2,838) (3,867)Share of net assets after equity accounting adjustments 283,732 239,618Share of joint venture entity’s revenue, expenses and resultsRevenue 57,469 76,302Expenses (4,594) (3,908)Net profit accounted for using the equity method 52,875 72,394Summarised financial information of the investment using the equity method (100%)Current assets 4,572 5,814Non-current assets 568,568 481,156Current liabilities (5,676) (7,734)Net assets 567,464 479,236Revenues 114,938 152,604Expenses (9,188) (7,816)Net profit 105,750 144,788Stockland Direct Office Trust No.1 200815


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 20088 Non-current assets – Other assets2008 2007$’000 $’000Fair value of hedging instrument 3,257 2,2559 Current liabilities – Trade and other payablesTrade payables and accruals 1,059 927Interest payable on loan facility 654 489Distribution payable 1,618 1,3453,331 2,76110 Non-current liabilities – Interest-bearing loans and borrowingsLoan facility 99,735 93,288Less: attributable transaction costs (232) (288)Total Balance Sheet carrying amount at amortised cost 99,503 93,000The Trust has a $108,434,000 (2007: $98,434,000) loan facility agreement with Westpac Banking Corporation. As at 30 June 2008, $99,735,000had been drawn (2007: $93,288,000). The weighted average interest rate on the loan facility was 8.35% p.a. (2007: 7.01% p.a.). Line fees of0.10% p.a. is charged on the overall facility limit. The facility matures on 30 June 2010.Westpac Administration Pty Limited has a fixed and floating charge over the units in the joint venture entity SDOT Sub-Trust 1.The Responsible Entity, on behalf of the Trust, has entered into an interest rate swap contract to manage cash flow risks associated with theinterest rates on borrowings that are floating. The interest rate swap allows the Trust to swap the floating rate borrowing into a fixed rate. TheTrust does not hold derivative financial instruments for speculative purposes.The face value of the swap contract of $92,538,000 is designated as an effective hedge of a portion of the loan facility fixing the cost of borrowingof the Trust for the term of the loan facility.Capital ExpenditureThe Responsible Entity increased the capital expenditure component of the above facility by $10,000,000 in October 2007 which is secured by afixed and floating charge over the units of the Trust’s investment in the joint venture entity SDOT Sub-Trust 1. The new capital expenditure facilitylimit is $15,896,000. Interest will be charged on the utilised portion of the facility at 90 day BBSY plus a margin of 0.50% p.a. As at 30 June 2008,$7,197,000 had been drawn down.Details of the facilities are set out below:FacilityMaturity dateFacility limits Utilised Facility limits Utilised2008200820072007$’000$’000$’000$’000Loan facility 30 June 2010 92,538 92,538 92,538 92,538Capital expenditure 30 June 2010 15,896 7,197 5,896 750108,434 99,735 98,434 93,288The variable interest rates on the loan facility have been swapped to fixed rates. Refer Note 17(b).16Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200811 Non-current liabilities – Provisions2008 2007$’000 $’000Opening performance fee provision 5,232 –Performance fee provision made during the period 1,193 5,232Unwind of discount 372 –Closing performance fee provision 6,797 5,232The Responsible Entity is entitled to a performance fee. The fee is calculated on a sliding scale and is payable by the Trust provided the net salesproceeds of the Trust’s property interest exceed the application price by 10%.A performance fee provision has been recognised as the consistent history of strong upward revaluations of the Waterfront Place propertyindicates it is likely an amount will be payable by the Trust.Based upon the value of the property interest at 30 June 2008 the estimated net sales proceeds exceed the application price by greater than40%. Using the sliding scale, a performance fee of 2.8% of the net sales proceeds will be payable in the future. Applying appropriate discountrates to reflect the projected life of the Trust and the inherent risks associated with market value movements in the property, a provision of$6,797,000 (2007: $5,232,000) has been recognised.12 Units on issue classified as debt2008No. of units2007No. of units2008$’0002007$’000Units on issue 66,500,010 66,500,010 60,145 60,145Date Details No. of units Issue price $’000Movements in units1 July 2006 Opening balance 66,500,010 – 60,14530 June 2007 Balance 66,500,010 – 60,14530 June 2008 Closing balance 66,500,010 – 60,145Rights and restrictions over unitsEach unit ranks equally with all other units for the purpose of distribution and on termination of the Trust.13 Reserves2008 2007Note $’000 $’000Classified as liabilityBalance at the beginning of the financial year 1 80,926 25,086Change in net assets attributable to Unitholders 37,618 54,345Effective portion of changes in fair value of the cash flow hedge during the year 8 1,002 1,495Balance at the end of the financial year 119,546 80,9261From 1 July 2005, in order to comply with AASB 132, the Unitholders’ funds are required to be treated as a liability and trust distributions to be treated as an expense in the Income Statement.Stockland Direct Office Trust No.1 200817


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200814 Net assets attributable to Unitholders classified as a liability1 July 2006 Opening balance 85,23130 June 2007 Movement in fair value of interest rate swaps 1,49530 June 2007 Change in net assets for the year attributable to Unitholders 54,34530 June 2007 Balance 141,07130 June 2008 Movement in fair value of interest rate swaps 1,00230 June 2008 Change in net assets for the year attributable to Unitholders 37,61830 June 2008 Closing balance 179,691The above net assets attributable to Unitholders is made up as follows:$’0002008 2007Note $’000 $’000Issued units classified as liability 12 60,145 60,145Reserves classified as liability 13 119,546 80,926179,691 141,07115 Distributions to UnitholdersDistributions to Unitholders recognised in the financial year by the Trust are:TotalDistribution amount Date of Taxper unit $’000 payment deferred200830 September 2007 2.0225¢ 1,345 31 October 2007 100%31 December 2007 2.0225¢ 1,345 29 February 2008 100%31 March 2008 2.0225¢ 1,345 27 April 2008 100%30 June 2008 2.4325¢ 1,618 29 August 2008 1 100%Total distributions 5,6531Proposed payment date.Distributions to Unitholders recognised in the prior financial year by the Trust are:Distribution Total amount Date of Taxper unit $’000 payment deferred200730 September 2006 2.0225¢ 1,345 3 November 2006 100%31 December 2006 2.0225¢ 1,345 28 February 2007 100%31 March 2007 2.0225¢ 1,345 27 April 2007 100%30 June 2007 2.0225¢ 1,345 28 August 2007 100%Total distributions 5,38018Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200816 Notes to the Cash Flow Statement2008 2007$’000 $’000Reconciliation of profit from operating activities to net cash inflows from operating activitiesProfit from operating activities 43,271 59,725Amortisation of borrowing costs 56 98Change in value of investment using the equity method (37,629) (59,464)Change in assets and liabilities:(Increase) in trade and other receivables (160) (12)Increase in trade and provisions 1,862 5,540Net cash inflows from operating activities 7,400 5,88717 Financial instruments(a) Financial risk managementThe Trust’s activities expose it to a variety of financial risks: credit risk, liquidity risk, and interest rate risk. The Trust’s overall financial riskmanagement focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Trust’s financialperformance. The Trust uses derivative financial instruments to hedge exposure to fluctuations in interest rates.Financial risk and capital management is carried out by a central treasury department under policies approved by the Directors of theResponsible Entity. The Directors provide written principles of overall risk management, as well as written policies covering specific areassuch as managing capital, mitigating interest rate and credit risks, use of derivative financial instruments and investing excess liquidity.Capital managementThe Responsible Entity’s objective when managing capital is to safeguard the ability to continue as a going concern, whilst providing returnsfor Unitholders and benefits for other stakeholders and to maintain a capital structure to minimise the cost of capital.The Trust considers capital to include interest-bearing liabilities and net assets attributable to Unitholders.Management monitor the capital structure of the Trust through the loan-to-value ratio. The ratio is calculated as the amount of the loan facilitydrawn divided by the latest valuation of the Waterfront property. The loan-to-value ratio at 30 June 2008 is 35% (2007: 39%).Credit riskCredit risk is the risk that a customer or counterparty to a financial instrument will default on their contractual obligations resulting in a financialloss to the Trust.Derivative counterparties and cash transactions are limited to high credit quality financial institutions.As at 30 June 2008 and 30 June 2007, there were no significant financial assets that were past due. Additionally, there were no significantfinancial assets that would otherwise be past due whose terms have been renegotiated.The carrying amount of financial assets included in the Balance Sheet represents the Trust’s maximum exposure to credit risk in relationto these assets. Refer to Note 5, 6 and 8 for a breakdown of these financial assets.Liquidity riskLiquidity risk is the risk that the Trust will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management impliesmaintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and theability to close out market positions. The Trust aims at maintaining flexibility in funding by keeping sufficient committed credit lines available.The current weighted average debt maturity is 2.0 years (2007: 3.0 years) being the expected end of the Trust’s life.Stockland Direct Office Trust No.1 200819


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200817 Financial instruments (continued)(a) Financial risk management (continued)Liquidity risk (continued)The table below reflects all contractual maturities of financial liabilities including principal and estimated interest cash flows calculated basedon conditions existing at balance date. The amounts presented represent the future undiscounted cash flows.Contractual 1 year End ofcash flows or less 1-2 years 2-3 years 3+years Trust life30 June 2008 $’000 $’000 $’000 $’000 $’000 $’000Contractual maturity of financial liabilitiesincluding derivatives and estimated interestTrade and other payables (2,677) (2,677) – – – –Loan facility (117,513) (8,816) (108,697) – – –Interest rate swap 3,586 1,969 2,881 (1,264) 2 – –Net assets attributable toUnitholders classified as a liability 1 (179,691) – – – – (179,691) 1(296,295) (9,524) (105,816) (1,264) – (179,691)Contractual 1 year End ofcash flows or less 1-2 years 2-3 years 3+years Trust life30 June 2007 $’000 $’000 $’000 $’000 $’000 $’000Contractual maturity of financial liabilitiesincluding derivatives and estimated interestTrade and other payables (2,272) (2,272) – – – –Loan facility (115,180) (6,797) (7,364) (101,019) – –Interest rate swap 2,553 485 1,097 2,303 (1,332) 2 –Net assets attributable toUnitholders classified as a liability 1 (141,071) – – – – (141,071) 1(255,970) (8,584) (6,267) (98,716) (1,332) (141,071)1Under the provisions of the Trust Constitution, the net assets attributable to Unitholders are repayable on the termination of the Trust which can occur at a date which the Unitholdersdetermine by extraordinary resolution (as defined by the Corporations Act). This is scheduled to be decided by Unitholders on or before 31 December 2009 at a meeting convened bythe Responsible Entity. The amount may not be called in the near future and therefore it is categorised as “End of Trust life” rather than at a stated maturity.2The loan facility matures on 30 June 2010. The interest rate swap matures on 1 July 2010.Interest rate riskInterest rate risk is the risk that the fair value of financial instruments or cash flows associated with instruments will fluctuate due to changesin market interest rates.The income and the associated operating cash flows of the Trust’s financial assets are substantially independent of changes in marketinterest rates.The Responsible Entity, on behalf of the Trust, manages the Trust’s cash flow interest rate risk by using floating-to-fixed interest rate swaps. Suchinterest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The fixed/hedged percentage at 30 June2008 was 93% (2007: 99%). Under the interest rate swaps, the Responsible Entity agrees with other parties to exchange, at specified intervals,generally quarterly, the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notionalprincipal amounts. Refer to Note 17 (b) for further details about the interest rate swap contracts.20Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200817 Financial instruments (continued)(a) Financial risk management (continued)Sensitivity analysisThe following sensitivity analysis shows the effect on the Trust Income Statement and reserves if market interest rates at balance date had been25 basis points higher/lower with all other variables held constant.An increase of 25 basis points in market interest rate would result in a loss to the Income Statement of $18,000 (2007: $2,000) and an increase inreserves of $376,000 (2007: $572,000). A decrease of 25 basis points in market interest rate would result in a gain to the Income Statement of$18,000 (2007: $2,000) and a decrease in reserves of $378,000 (2007: $577,000).(b) Derivative financial instruments used by the TrustThe Trust is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates inaccordance with the Trust’s financial risk management policies as mentioned above.Interest rate swap contractThe Responsible Entity, on behalf of the Trust, has entered into an interest rate swap contract to manage cash flow risks associated withthe interest rates on borrowings that are floating. The interest rate swap allows the Trust to swap the floating rate borrowing into a fixed rate.The Trust does not hold derivative financial instruments for speculative purposes.The face value of the swap contract of $92,538,000 is designated as an effective hedge of the loan facility fixing the cost of borrowing of the Trustfor the term of the loan facility.A swap is currently in place covering 93% (2007: 99%) of the loan principal outstanding and is timed to expire as the loan repayment falls due.The fixed interest rate is 5.97% p.a. (2007: 5.97% p.a.) and the variable rate is the 90 day Bank bill rate which at 30 June 2008 was 7.70% p.a.(2007: 6.36% p.a.).At 30 June 2008, the notional principal amounts and periods of expiry of the interest rate swap contract for the loan facility are as follows:2008 2007$’000 $’000Less than 1 year – –1-2 years – –2-3 years 92,538 –3-4 years – 92,538Over 4 years – –The contract requires settlement of net interest receivable or payable quarterly. The settlement dates coincide with the dates on which interestis payable on the underlying debt.This swap has been designated as an effective cash flow hedge in accordance with AASB 139 “Financial Instruments: Recognition andMeasurement” and has been tested for effectiveness. At 30 June 2008, the swap is considered to be effective and accordingly the full changein the fair value is recognised in net assets attributable to Unitholders. Refer accounting policy at Note 1(h).At balance date, the swap contract had a fair value of $3,257,000 (2007: $2,255,000) included in other assets on the Balance Sheet.(c) Fair values of financial assets and liabilitiesThe carrying amounts of cash and cash equivalents, other receivables, the facility agreement and interest rate swap as disclosed in the BalanceSheet reflect the fair value of these financial assets and liabilities as at 30 June 2008.The fair value of the interest rate swap has been determined in accordance with generally accepted pricing models by discounting the expectedfuture cash flows at prevailing market interest rates.Stockland Direct Office Trust No.1 200821


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200818 Related partiesStockland Capital Partners Limited (“SCPL”), formerly known as SFML, is the Responsible Entity of the Trust. The Key Management Personnelof the Trust has been defined as the Responsible Entity. The Responsible Entity does not hold any units in the Trust.The Directors of the Responsible Entity and their units held in the Trust at 30 June 2008 are as follows:DirectorNumber of units heldMr David Kent 20,000Mr Matthew Quinn 15,0002008 2007Responsible Entity fees and other transactions $’000 $’000Responsible Entity feesThe Responsible Entity charged responsible entity fees calculated at 0.45% per annumof the gross value of the assets.As at 30 June 2008, the Responsible Entity has agreed for the Trust to defer paymentof part of the Responsible Entity fees amounting to $Nil (2007: $209,180). 1,231 966Performance feesThe Responsible Entity is entitled to a performance fee which is calculated on a sliding scale and is payable bythe Trust provided the net sales proceeds of the Trust’s property interest exceeds the application price by atleast 10%. Refer Note 11. 6,797 5,232Total Responsible Entity fees and other transactions 8,028 6,198Other related party transactionsLimited Liquidity Facility (“LLF”)Westpac has agreed to acquire up to 521,000 units in the Trust per quarter at a 2.5% discount to NTA per unit less transaction costs, fromUnitholders seeking to realise their units. Stockland Trust Management Limited, as Responsible Entity for Stockland Trust, has placed a standingorder with Westpac to acquire a maximum of 521,000 units per quarter at a price calculated in accordance with a predetermined formula. Thisstanding order from STML can be terminated at any time. During the financial year STML, as Responsible Entity of Stockland Trust, acquired1,552,500 units (2007: 540,000) in the Trust via the LLF.Units held by Stockland TrustAs at 30 June 2008, Stockland Trust Management Limited, as Responsible Entity for Stockland Trust, a related party of the Responsible Entity,holds 2,537,500 (30 June 2007: 985,000) of the units in the Trust.Property Management and Leasing FeeStockland Property Management Limited, a related party of the Responsible Entity charged $1,336,589 (2007: $1,145,631) for the SDOTSub-Trust 1 property management services including onsite property management staff and leasing fees. Of this amount $821,816 (2007:$209,404) forms part of the outgoings recoverable from tenants pursuant to leases.RentSDOT Sub-Trust 1 charged rent of $86,349 (2007: $49,317) to Stockland Property Management Limited, a related party of the Responsible Entityfor the occupancy of the management office at the property.Limited debt guarantee feeStockland Corporation Limited, a related party of the Responsible Entity, charged $97,798 (2007: $92,976) for the provision of a limited and partialguarantee for the benefit of the trust to Westpac as the provider of the debt facility. The fee is calculated at 0.1% of the drawn balance of thedebt facility.22Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1notes to thefinancial statementsfor the year ended 30 June 200819 CommitmentsThe Trust has no commitments at balance date (2007: $Nil).20 Other InformationLife of the TrustThe Trust terminates on the earliest of:(a) the 80th anniversary of the date before the Trust commenced;(b) a date which has been proposed to Unitholders by the Responsible Entity, and which the Unitholders have approved by SpecialResolution; and(c) the date on which the Trust terminates in accordance with the provisions of the Trust Constitution or by law.21 Contingent liabilities and contingent assetsAs at 30 June 2008, the Trust has no contingent liabilities (2007: $Nil) or contingent assets (2007: $Nil).22 Events subsequent to balance dateThere have been no events subsequent to balance date which would have a material effect on the Trust’s Financial Statements at 30 June 2008.Stockland Direct Office Trust No.1 200823


stockland direct office trust no. 1Directors’Declarationfor the year ended 30 June 2008In the opinion of the Directors of Stockland Capital Partners Limited, the Responsible Entity of Stockland Direct Office Trust No .1:1. the Financial Statements and Notes set out on pages 6 to 23, are in accordance with the Corporations Act 2001 including:(a) giving a true and fair view of the financial position of the Trust as at 30 June 2008 and of its performance for the financial year ended on thatdate; and(b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;2. the Financial Report also complies with International Financial Reporting Standards as disclosed in Note 1(a);3. at the date of this declaration there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become dueand payable;4. the Trust has operated during the year ended 30 June 2008 in accordance with the provisions of the Trust Constitution as amended dated 19August 2004; and5. the Register of Unitholders has, during the year ended 30 June 2008, been properly drawn up and maintained so as to give a true account ofthe Unitholders of the Trust.Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to Section 295(5) of the Corporations Act 2001.Signed in accordance with a resolution of the Directors:Matthew QuinnDirectorDated at Sydney, 21 August 200824Stockland Direct Office Trust No.1 2008


stockland direct office trust no. 1independentauditor’s reportto the unitholders of stockland direct office trust no .1Stockland Direct Office Trust No.1 200825


stockland direct office trust no. 1independentauditor’s reportto the unitholders of stockland direct office trust no .126Stockland Direct Office Trust No.1 2008


Stockland Corporation LtdACN 000 181 733Head OfficeLevel 25, 133 Castlereagh StreetSydney NSW 2000SydneyTelephone 02 9035 2000MelbourneTelephone 03 9095 5000BrisbaneTelephone 07 3305 8600PerthTelephone 08 9368 9222United Kingdom37 Maddox StreetLondonW1S 2PPTelephone +44 (0) 845 070 4633www.stockland.com.auDisclaimer of LiabilityWhile every effort is made to provide accurate and complete information, Stockland does not warrant or represent that the information in this brochure is free from errors or omissions or issuitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Stockland accepts no responsibility for any loss, damage, cost or expense (whether direct orindirect) incurred by you as a result of any error, omission or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated.

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